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Democratizing Access To Wealth Management | Sandeep Jethwani @ Dezerv.in
213 Plays3 years ago
In this edition of Founder Thesis, Akshay Datt speaks with Sandeep Jethwani, Co-founder, Dezerv.in. He is an alumnus of IIM Bangalore and has an extensive experience in the wealth management domain.
Before starting his entrepreneurial journey, Sandeep worked with IIFL Wealth for more than a decade. In a bid to democratize access to investment expertise, he started Dezerv.in in 2021. This wealth tech platform integrates domain expertise and technology and creates high-performing long-term portfolios and provides exclusive investment opportunities for its members.
Tune in to this episode to hear Sandeep speak about how Deserv.in is tirelessly working towards making wealth management a reality for all.
What you must not miss!
- Why is crucial to hire the correct team?
- What is Integrated Portfolio Approach?
- Dezerv’s user onboarding journey
- Why hyper-communication is important?
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Transcript
Introduction to Zencastr and Podcast
00:00:00
Speaker
Before we start today's episode, I want to give a quick shout out to Zencaster, which is a podcaster's best friend. Trust me when I tell you this, Zencaster is like a Shopify for podcasters. It's all you need to get up and running as a podcaster. And the best thing about Zencaster is that you get so much stuff for free. If you are planning to check out the platform, then please show your support for the founder thesis podcast by using this link, zen.ai slash founder thesis.
00:00:27
Speaker
That's zen.ai slash founder thesis. Hi, I'm Sandeep, co-founder at Deserve.
00:00:46
Speaker
Hi, I'm Akshay. Hi, this is Aurob. And you are listening to the Founder Thesis Podcast. We meet some of the most celebrated sort of founders in the country. And we want to learn how to build a unicorn.
Opportunities in India's Wealth Management
00:01:03
Speaker
While we already have a couple of unicorns like Zerodha, Grow and Upstocks, from the investment space, there's still a massive opportunity for multiple unicorns to be built in this space. Here's a data point to convince you. In the US, the total value of mutual fund investments is equal to 110% of the GDP. In India, that number is just 15%.
00:01:25
Speaker
And not only that, but the large number of middle-income Indian households that will be created in the next decade will lead to a total of $4 trillion in the new household investment. A company that captures even 1% of this market will have an opportunity to drive investments worth $40 billion. Now that the long-term story is there, let's zoom into one of the possible next-generation unicorns in this space.
00:01:50
Speaker
Deserve, that's spelled D-E-Z-E-R-V. Deserve is a technology-driven personal wealth management platform that unlocks access to wealth management expertise previously only available to H&Is.
Founding Deserve: Sandeep Chetvani's Journey
00:02:03
Speaker
Sandeep Chetvani, the co-founder of Deserve, spent a decade and a half building large traditional businesses in the wealth management space before finally deciding to take the plunge to build Deserve.
00:02:13
Speaker
right in the middle of the pandemic. Listen on as he tells Akshay Dutt about the fascinating journey of building what we hope will be the next big fintech unicorn from India.
00:02:29
Speaker
always more passionate about interacting with people, dealing with others, etc. So for me, like the natural extension after that was to give the cat and go to one of the IAMs. And as it happened, I had both been Bangalore, but I chose Bangalore because I just found the vibe better. In 2005, which is when I was graduating, there was this concept of wealth management wasn't so hot.
00:02:55
Speaker
If you put things in context, 1992 was just 13 years ago, which is when the scam had happened. And 2001, 2002, when the Kethanparik issue had happened, in India, that was extremely recent. So in a sense, it was not a very respectable profession to get into, which is like, that was not, I mean, never like, no parent would proudly tell their parents
00:03:22
Speaker
family members and my son is a stockbroker or an investment manager. But having said that, I said, let's try this and I was extremely fortunate in that when I joined Wealth Management 2005, 2005 to 2007,
00:03:38
Speaker
Very similar to today, money was literally being printed in the markets. Like everything that you would touch would go up. At the end of 2007, along with five or six other folks, we got this opportunity to set up a wealth management business at India Infoline, which is now called IIFL.
00:03:56
Speaker
And this was actually a completely independent business with a significant ownership from IIFL. So that became like the next step, which is when a few of us quit. And as an early stage startup at that time from like somebody who's been an employee from day minus 90, it was like you would get involved into. So I was.
00:04:16
Speaker
I, for a bit, I was on the investing side, then I moved to setting up a large part of the Western region practice. Then I moved on to set up and run IFL1. So there was this whole experience of starting up multiple times within an organization. And that was again, very exciting because the whole, like I, and you're also an entrepreneur, Akshay, so you know this, but the whole thrill is in the concept to the delivery, like that journey.
00:04:44
Speaker
like what in your head an idea to becoming a reality that is like most exhilarating feeling that you can get. That saw that multiple times within IFL wealth.
Tech Transformation in Wealth Management
00:04:56
Speaker
2019 was when we decided that there were a couple of big changes that are happening in the world, especially on how users are adopting technology. The fact that people no longer
00:05:08
Speaker
need to meet people for otherwise mundane activities was a big thing. Now, if you think about the wealth management business, Saksha, it's a large part of the revenue, 60 to 70% of revenue is the cost of the people who are delivering advice or engagement to the user. And there's a reason for that.
00:05:32
Speaker
There's a cost of the wealth managers, typically a very high cost resource, because of a relatively talented combination of both financial acumen and personal skills, etc. So this unique combination is relatively rare. These folks were paid really well. Because they were paid well, that money had to be recovered in some sense from somewhere, which is the client's portfolio.
00:05:59
Speaker
Now therefore the client's portfolio had to be of a certain scale to be able to afford that service. And how is wealth management monetized? Is it like a flat fees percentage or is it like on a per transaction or what is it like?
00:06:17
Speaker
multiple different ways actually. So there are people who make money from commissions, there are people who make money from fees, there are people who make money from profit share, there are many ways of wealth management. But in some substance of it is that the cost of service is high and therefore the service is limited to people of a certain AUM or assets under management.
00:06:44
Speaker
And the only way to break out of this and this like restricted like almost club like thing was to use technology to deliver the same thing to many people. Okay.
00:06:58
Speaker
In 2019, we were seeing early signs of that. We were seeing that at that time it wasn't such a big thing, but there was a company called Zoom, which was talk to people and we were like, oh, this is interesting. This will be something powerful. And then Microsoft was embedded teams at that time, et cetera. So all of this was going
Democratizing Wealth Management with Deserve
00:07:16
Speaker
on. We were in February of 2020 when we were like, okay, now let's do it. And back in COVID hits at that time.
00:07:24
Speaker
February March, the whole world tosses up. And we think that we owe responsibility to our clients at IFL. Let's knock her down. Let's spend two months and see this, it will true. And then we will do this. Because again, that same thing, like you manage money for these people for the last 14-15 years, you feel like this is not a great time to leave them in the lurch like that. Yeah, they would anyway be panicking so much uncertainty.
00:07:51
Speaker
Now, what we did not realize is this was not a two month thing. March 2020, we said, let's hold it. Let's revisit in April. But suddenly, before you knew it, we were in September, October of 2020. That is when we said, now this is it. And things had seemed to have passed at that time. First wave was over. Things were getting better. We said, now is the time to do it.
00:08:14
Speaker
So that's when we told affirmatively that we will exit because of the fact that we were in senior positions. I was on the board of a couple of their companies. We said 31st March will be when we will exit. And that's essentially how this happened. So you had a model in mind that you will do like a betterment kind of approach or like what was the model you had in mind when you quit?
00:08:40
Speaker
So to be really honest, Akshay, as much as I'd like to say that I had a model I didn't, it was the fact that the core idea was that in India, high quality wealth management advice or money management advice is not available. And there are two sets of people in the world or in India also. One is what I call the active minority, which are people who enjoy the complexity of investing.
00:09:07
Speaker
For them, the process is as exciting as the outcome. You want research, stocks, mutual funds, etc. Enjoy that. Then this is called silent majority, which were people who couldn't wrap their head around this or didn't have the time or the inclination. In some sense, I was also one among them. I would love it if somebody has handled it for me. I don't want to look at it.
00:09:30
Speaker
For these guys, there was a massive dearth of access. The only option for them was a mutual fund basically. The only option was a mutual fund and they would ad hoc select mutual fund. So one of the biggest searches on Google is best mutual funds. Okay. I mean to ask Google for investment advice is like that was truly what was happening. And now what that meant was either people would invest badly or they would not invest at all. And then either of those two situations, you are ending up
00:09:59
Speaker
with a suboptimal outcome. And I genuinely believe that if your money does well for yourself, you have many more choices in life.
00:10:11
Speaker
and you're happier in life, right? So money doesn't buy happiness, money buys choices which buy happiness, right? I think that, so somewhere there was a feeling that maybe if not everyone is benefiting, like the wealthy are getting wealthier, but people who have some money could potentially do much better. And then the long term, they think about India as a country will do better if everyone does better with their money, right?
00:10:38
Speaker
So that was the core concept that we have to bring access. Now how, what form, what is the end product going to be? All of that was quite vague to be honest. And that's what I was telling you, right? That's the exciting part like that.
00:10:54
Speaker
a vague concept to a business, like is the magic of entrepreneurship. So yeah, so that was, we didn't have a model in mind. We just said that this is a group of people that we want to work for, which are people who are salaried individuals who are working very hard in their day jobs, but they don't have the right offering before them. And we have to deliver it digitally because to deliver it using human beings who are visiting the user is not viable.
00:11:23
Speaker
the two things were this that this is the group that we'll go after our service and this is we'll use tech for that. So why can't mutual funds solve this problem? Does active wealth management give a better rate of return than a mutual than passively just putting money through a SIP into a mutual fund?
00:11:46
Speaker
Yeah. See the big thing is, Akshay is that every user is different. There's this amazing writer. He's now an author called Morgan Hausl. And he says personal finance is 90% personal and 10% finance. Right. Now.
00:12:05
Speaker
What happens is that your risk appetite and my risk appetite is different. Your life story and my life story are different. Your expectations or objectives in life are minor different. So how can our portfolio be common? And therefore, how much of equity or debt or gold you will have in your portfolio versus what I will have in my portfolio is very different.
00:12:33
Speaker
And that is what really a wealth manager needs to do is to figure out the appropriate combination and then mutual funds or index funds or stocks or bonds are basically means to achieve that. But what is the right combination for you? Like, I mean, theoretically, if both you and I have fever,
00:12:58
Speaker
We could Google online and take the same medicine, but that's not what happens. I think that's pretty much why you need somebody to... Moving from a one-size-fits-all solution, which is what a mutual fund is, to a bespoke, customized, built-for-you portfolio.
00:13:19
Speaker
Yeah, absolutely. And also the other thing is that today there are 8,000 mutual funds, schemes, options and plans, right? How does an individual investor who's probably in a day job somewhere else supposed to do this? Like how do you ensure that you're not missing out on?
00:13:37
Speaker
the right opportunities, et cetera. So like when we started our careers, large-cap mutual funds used to be the thing to do. Today, that's complete change. You're doing index funds, right? So change, change will continue happening. Like when we started paying the portfolio, when we started Deserve, which is about, we launched the product about eight weeks ago, the portfolio construction to what it is now is also about altered slightly. We've cut down risk in the portfolio.
00:14:07
Speaker
because we believe that there is a little bit of risk build
Building Deserve's Team and Product Strategy
00:14:10
Speaker
up that has happened in the markets. Now that bit of like adjustment etc is important and the reason we do that is because when markets do fall and the portfolio falls more than what you can tolerate, that is when you break out of your investment journey, you break compound.
00:14:32
Speaker
For us, the biggest thing is that how do we ensure that our users don't break the compounding?
00:14:38
Speaker
their portfolio grows continuously. Diversification, essentially. Diversification in a way that is suitable to that particular individual. Tell me about that launch journey from quitting the job to you launched it two months back. What was happening behind the scenes in these six, eight months when you were building? Interesting thing was happening.
00:15:03
Speaker
Like I said, for me, the biggest thing is building a right team and getting a set of people and then seeing them grow. But when we started recruiting, I was out of IFL in April. Again, April, May, June was the second wave that hit. And, you know, when you're hiring for a startup, and again, you know this, you'd like to build a personal rapport with the person you're hiring because at the end of the day, it's
00:15:32
Speaker
if not it is a founding team and you are.
00:15:36
Speaker
It's also that you're hiring for the attitude. It's not only hiring for skills, right? And if you're hiring for attitude, how do you hire for attitude without meeting that person? This is massive, very hard. Like in a normal situation, I would spend like eight, nine hours just talking to that person over a couple of meetings, over coffee beer, et cetera, and then figure out whether we want to work together. It's almost like the course super dating. But suddenly that opportunity was not there.
00:16:06
Speaker
So that was the first challenge that we had to navigate, which is talk to people without meeting them. But again, I was extremely fortunate because what happened was that people relate with the problem that we are trying to solve, that the fact that high quality advice is not available to people who don't want to punish money themselves. In fact, the exciting thing was that a lot of the potential
00:16:37
Speaker
team members that I was talking to were also people who felt this problem immediately. They were like, yeah, you know, this is my problem. Like, you know, everyone, like everyone is telling me that go buy a mutual fund. But I'm like not able to figure out what should I do, etc.
00:16:55
Speaker
That became strong. I mean, it aided our ability to hire high quality talent. And the second advantage we had was people wanted to work with experienced founders. That is something definitely that played into our strength. We had done businesses before, not as entrepreneurs, but as intraprometers, if you will. And that really made it much easier.
00:17:19
Speaker
So the first couple of months was getting the team together. But before you started getting the team together, you must have firmed up on the product vision, right? The product that you want to build. What was that? Because when you quit, you were pretty open about what it is exactly. I mean, you knew the problem, but you didn't know how you'll solve it. So tell me about figuring out how you'll solve. So it was both happening in parallel to some extent. So on the problem side, we said that
00:17:46
Speaker
What is the biggest issue somebody who is not excited about investing facing? It's the number of choices that they have. Today, as you go and create a portfolio, first you have to decide how much to put in equity debt, international equity, gold, REITs, Bitcoin, etc. Well, that is the first problem that you have.
00:18:04
Speaker
Secondly, once you decided that, okay, equity, I want to put 20% of my money in equity. Now what? Then there is large cap, mid cap, small cap. Within large cap, there are 40 funds that you could do within mid cap, 60 and so on and so forth. Like all of that complexity. So at the very minimum, there were 20 to 25 decisions that you would need to take to create a diversified portfolio. We said that we have to reduce this to one decision.
00:18:29
Speaker
make it so easy and seamless that people have to take one decision, what type of portfolio do they want.
00:18:38
Speaker
The second thing we said is we have done this for the last 15-16 years, especially above who runs investing for us. He lives, breathes investments, right? So he is researching, analyzing, etc. So we said that expertise which we have, how do we deliver them? So we said we will reduce the number of decisions. We will do all the heavy lifting so that our users don't have to do that heavy lifting.
00:19:05
Speaker
And that is where that was the product concept that was emerging at that time, which is essentially what became the integrated portfolios or as we call them, like the integrated portfolio approach came out of those discussions. So what is the integrated portfolio approach like? Yeah. So there are a couple of things there. One is that we believe that for a long-term compounding portfolio, it has to be diversified across different assets. That's number one. Secondly, this asset allocation cannot be static.
00:19:35
Speaker
It has to evolve and change over a period of time. Third is we have to apply a lot of diligence and science to the underlying instruments that you choose in the portfolio. And fourth is that the overall cost of the portfolio has to be kept down. If we are able to do these, then we create these portfolios which minimize risk. And by the way, for us minimizing risk is as important as the second objective, which is increasing return.
00:20:06
Speaker
So, while return is what we see, risk is what we feel, right? So, I think that was something that we said will be the two objectives with these four as inputs that low cost, a structured investment selection, evolving asset allocation and the fact that it diversified.
00:20:23
Speaker
What contributes to cost? Like you said, you want to keep the cost low. Cost is what? Like the brokerage fees which is paid out or like what do you mean by keeping cost low? So there are multiple things. So there's transaction costs. Then there are the fund managers. So suppose if I'm allocating money to mutual funds, then there's a cost of the fund management side also or the asset management fees.
00:20:46
Speaker
How do you minimize the total cost was important for these type of
Portfolio Management and User Experience at Deserve
00:20:50
Speaker
portfolios. When we said that depending on the user's risk profile, we create a dynamic portfolio for them. Okay. So here is where we use some quantitative models to create these portfolios. And then there is a human expert intervention required in selection of instruments.
00:21:10
Speaker
because India still not feeds that phase where everything can be done digitally or selection because there's a lot of software like you have to figure out which fund manager, what is his or her previous track record, are they likely to continue with the fund house or not or are they taking jobs etc.
00:21:26
Speaker
So all of those things became, that's where the human element comes in. How many such portfolio types did you create? Like what was the logic behind making these portfolio options and how many options? Theoretically it is infinite because it depends on the user's risk profile. Now we do, however, see users over time gravitate to seven to eight different risk profiles.
00:21:50
Speaker
But theoretically, depending on how the users answer the questions or interact with us, we can create infinitely large number of integrated portfolios. What are the data points you're taking to arrive at the risk profile of the user?
00:22:06
Speaker
So again, that was where we were slightly innovative. We said that the user's age is obviously important, but also their investing experience. How long have they been? So because what is happening is somebody who's been investing the last two, three years will have only seen upside, right? So even if they tell me that you can handle a very large dip, they have not experienced it.
00:22:30
Speaker
So the user's investing history, how long have you been investing? What type of instruments have they been investing also tells us that how sophisticated or how tolerant of volatility they are. We also don't understand how much volatility they can tolerate. Like they have a 10% fall in the portfolio, can they handle a 20% fall in the portfolio and all of that. So those were things that we were looking at and obviously your goals in life and what you're saving up for.
00:22:57
Speaker
But I think a lot of our work is premised on how much downside a user can. If you like to hear stories of founders, then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple podcasts, and subscribe to the show.
00:23:27
Speaker
How many downside and possibly when they want to take on that money like if someone is 55 then you know in five years he will. That was one part. The second part is which is only we can discover over time is how the user behaves once they come onto the platform.
00:23:44
Speaker
Are they like, do they come back repeatedly? Do they come back on days when markets are down? Do they come reinvest on days when markets are down? So that tells us more, but that is we will build over a period of time with the user.
00:23:58
Speaker
But we have created the systems to be able to capture this information, even at the very early stage. Is it not passive investing? Like, why would users come back again and again? Isn't it like you just give your money to deserve and forget about it? You forget about it, but when every month you come back to top up the portfolio, right? Depending on, like, you've got some surplus cash, people come back. The second reason people come back is when markets are being volatile.
00:24:26
Speaker
to see how their portfolio is doing.
00:24:29
Speaker
So that is again an indicator for us on how users behave with their money. Like can users do stuff on their own like in terms of let's say today equity is dropping. So can you use a login and say sell off my equity portfolio or is it managed by Deserve? It's managed by Deserve. In fact, that's very different than the other well tech platforms. In the other well tech platforms, you are expected to manage it on your own.
00:24:56
Speaker
Here we don't actually, and it can be frustrating for some users, but we don't actually allow for that. Because we own performance, right? The only decision for a user is, do I put in more money or do I take out money? That's it. The money is like fully liquid, they can take out money, come in anytime, go out anytime.
00:25:15
Speaker
But while the time that they are with us, we will help them with their portfolio. So you said that users are gravitating towards 7, 8 type of profiles. Is it possible to describe those profiles like what they are? Yeah, so I think it again depends on the kind of risk that they can tolerate. There are users who don't want to handle any risk at all. Like for them, this money is probably something for emergency, something that they need very near term, etc.
00:25:43
Speaker
And for the other extreme, there are users who are saying that I don't need this money for 10-15 years and I can tolerate volatility. So this is the entire spectrum of people that who are there. And within that, then there are like certain mini groups which form over a period of time. So there are people who like maybe can handle 10% volatility, people who can handle 15% volatility and so on.
00:26:09
Speaker
Those are the seven to eight types that come up. So what was the product that you launched? What does it look like? What is the experience of a user like on it? So the first thing we said was that we will offer these integrated portfolios.
00:26:24
Speaker
And the moment the user invests into the integrated portfolio, they get access to a bunch of alternative investments, which is like three or four well curated instruments, which are just beyond the integrated portfolio you want to like, and especially for users who have a particular objective or want to express a belief.
00:26:43
Speaker
Like a lot of our engineers want to support startups, right? So for a certain part of their money, they will put there. But we said that in these alternative deals that we do,
00:26:55
Speaker
We will originate the deal, we will do the diligence. So, we are not a super market where you see everything. You only see those where reserves team has done the work and we say that we are comfortable with it. And the third thing we said is we will cut down the ticket size because in alternatives as an asset pass, the ticket sizes were 50 lakhs, 1 crore, 2 crore per deal.
00:27:18
Speaker
How do we bring them down to 50,000? And that requires us to work a lot with the person who's issuing that instrument, which is what we will do. So that was the alternative side. So the users come and invest in the integrity portfolio, get access to alternatives. Give me examples of alternative investments, like what are they? So we've done high yielding fixed income where bonds which are giving 10 to 11%, but again, we are comfortable with the credit risk.
00:27:44
Speaker
We have done global assets, we have given access to Indians to fund managers which Indians do not have access to right now. We have given, we have done a bunch of pre-IPO transaction, again very selective on that side because pre-IPO by its very nature is illiquid, it is locked in and therefore
00:28:03
Speaker
You have to be very sure that you'll do well with it. But pre-IPO means that it's just a matter of like a month or two before it becomes liquid. No, it takes about six to 12 months for the company to list. So it's a long holding period. And what we do is we do tell the user, sometimes we tell the user this is not suitable for them.
00:28:22
Speaker
And that is the responsibility, the fiduciary responsibility that a wealth manager should have, is to tell the user that it seems exciting, but this is not right for you, or this is too risky for you. Obviously, the user then finally can pull the trigger if they want to, but the power is in their hand. So this pre-IPO investing is what you're talking about when you say investing in startups.
00:28:42
Speaker
So that was this whole integrated portfolio, but we do make everyone do the integrated portfolio, right? Because that is the core part that you have to begin with. It's all good to do all this exciting stuff, but the first thing that a user must do is the integrated portfolio, which is the starting point of their investing journey with us. So this was happening, but then we realized that we should also offer the user the comfort of reaching out to somebody, guess they have a query, have an issue, etc.
00:29:12
Speaker
And we created this group of member partners, which are these folks who are digitally via the platform and integrated with WhatsApp are available to the user.
00:29:25
Speaker
This what we did not realize. Why are you calling them member partner? These are your employees? These are our employees. So a user on the deserved platform becomes a member of the deserved community. So therefore these are partners. So what we realized was this became like a very big thing, like especially in the initial days of product, the user started telling the member partner that this word I did not understand.
00:29:53
Speaker
or this, this was not clear to me. And that became like an instant feedback loop for our team. Right. The member partners list down the typical questions that they got and they tell us within like three, four days, the product changes to address that issue. And which is why today our onboarding is very, because of the fact that these member partners collected feedback, live feedback from the users.
00:30:17
Speaker
And users also loved it because this was exactly the right amount of human interaction that they wanted. They wanted to do it on their own, but if there's a problem, they want to be able to talk to somebody who participated, etc.
00:30:31
Speaker
That really worked for us. And the only thing we said is that because we want to deliver this high quality experience, we will keep the platform invite only, which is that people apply for an invite and we release access in sort of cohorts or waves. And that enables us to ensure that every member has a good onboarding experience. We have some capability to work with them, et cetera.
00:30:55
Speaker
Because it's not pure self-service, so you need enough manpower to manage that onboarding. Yeah, you need manpower and what happens is that suppose I release invite to say 50 people, on that particular day, 35-40 will reach out to us. Now, I don't want a situation where we don't respond to them, right? I mean, that's not acceptable and maybe coming from wealth management, I have that bias that we should be instantly accessible to our user.
00:31:24
Speaker
So that was where we said we'll keep it invite only. What is the user onboarding journey like you release invite then what happens like an email goes to? Yeah, the email goes and now we are integrating with WhatsApp. So users will start getting WhatsApp messages as a free email. Once they click that they want to get started, we offer them an option of a direct onboarding, which is they can go directly or they can also do a 20 minute zoom call with their member partner.
00:31:53
Speaker
right? In case they want to understand more and some of our users do take up on the call also. And we actually, we would love more users to do the call with us because, and we are learning about them, right? So it's a two way thing, right? When I talk to a user and a bunch of these calls, especially on weekends, the three of us founders do the calls because we also want to meet our members and figure out like what, how are they thinking about their money, about deserve, et cetera.
00:32:23
Speaker
So that is the call that happens. Post the call or after the direct onboarding, we release a recommendation to the member of integrated portfolio that we think is suitable for them.
00:32:36
Speaker
They can either do that integrated portfolio or they can step away and do another one of our integrated portfolios. But they cannot keep the underlying portfolio because that is created in a certain way for a certain reason. So one question, so you said that there are like infinite integrated portfolios. Theoretically yes, but right now there are like a limited number, but theoretically it can be infinite.
00:33:02
Speaker
Okay. Right now you have like some eight or 10 or some X number of, and how do you label these? Like how does a user understand who is this portfolio for? We tell them that this is the right risk profile for you. And then there are certain integrated portfolios which are riskier for you or certain integrated portfolios which are more conservative for you.
00:33:25
Speaker
So they can see that spectrum and they can flip around within the spectrum. But how are these labeled? Are they just labeled with a number like 7 on 10? Yeah, because it's easier for people to understand numbers. We initially experimented with 7 to 8 names. And then we realized that we are creating more effort for the user. Yeah, because he doesn't know what the name implies.
00:33:47
Speaker
What the name is and everyone's perception of, let's say, if I say this is a cautious portfolio and this is a confident portfolio, like how?
00:33:56
Speaker
So we said we'll make it numeric. And again, this was feedback that came from users. So you invest in the integrated portfolio, you become a member, and then you get access to these alternatives. And how do you monetize? Do you have a membership fees that you charge? Or is it a commission? Or what is it like?
00:34:20
Speaker
Yeah, so we'll experiment with both models. One is the fee-based model and the commission-based model. But even in the commission-based model, what we are doing is we are telling the user how much commission we are making from their portfolio every month. And by the way, that doesn't happen
00:34:39
Speaker
in the conventional wealth management or banking industry. Like you ask a banker to tell you how much money did they make from your portfolio this month. Either they will not have the data or they may not be able to share it with you.
00:34:54
Speaker
So that is something and that in fact has been a big aha moment for a lot of our users. When we tell them that you've invested 1 lakh with me, I will make 35 rupees in this month from your portfolio. The common feedback that we get from users is like why only 30? Like how is it like?
00:35:12
Speaker
But that's what it is, right? It is in the range of 30 to 50 rupees per month per lakh. This earning per month would only be there if it's like mutual fund and these kind of investments. If it's stock market where you invest one time and hold, then there is no monthly amount that you will make on it, right? There is no monthly amount. But you know, today, where we are in the markets, we are not comfortable taking a concentrated position. Markets are
00:35:42
Speaker
not cheap, definitely. So this is not the time to create concentrated portfolios. And the second thing is we are not offering. What do you mean by concentrated portfolio? Sorry, you know, I want to just demystify these jargons here. Typically when you invest in a 15 to 20 stock portfolio, your portfolio performance is dependent on those 15 to 20 stocks. Whereas if I'm investing in index funds and mutual funds, my portfolio is underlying is 50 to 100 stocks.
00:36:11
Speaker
So, there is diversification. Now, when markets are moving up, having 15 to 20 stocks is all good. But markets move down, these portfolios can fall very sharply. And because if one or two stocks do badly, your portfolio will do badly.
00:36:31
Speaker
And current markets, we think that it is better to be more cautious while continuing to get benefit of equity upside. There's no reason to be very crazy about it. So currently you are not recommending direct equity investment, but rather mutual fund. Yeah, for our investors. The second thing we said, we will not do trading portfolios.
00:36:53
Speaker
We are not running a trading portfolio. In fact, I wrote about this recently, where there is a thrill of the chase, right? Which is what happens when it comes with trading. Like, you almost feel like, and I liken you to prehistoric hunting.
00:37:11
Speaker
It uses propamine and adrenaline in our body when we are going hunting. Today we don't go hunting. The only other way is gambling, mobile gaming or investing. That the hunt itself gives you a thrill. So selecting instruments is the same thing as the search that you do. Throwing the spear is the call that you make to buy yourself.
00:37:41
Speaker
And when this thing works out, you feel the same high as you would feel when you actually have shot down the... But actually in real life, it doesn't mean that you'll always shoot something down. Okay, you might actually lose money also. And that is something that we definitely want to avoid. We are not doing equity trading portfolios. We strongly believe in that actually.
00:38:05
Speaker
And even if it means a particular type of users not coming to us, so be it, we'll educate them, but we will not do something just to get traction. So which is why we have not done direct stock investing
Investment Strategies and Partnerships
00:38:20
Speaker
just yet. And so once a user selects his portfolio, then they do like a bank transfer or UPI, what like all these options.
00:38:28
Speaker
Yeah, so they select the portfolio. We use the BSE star platform at the back end. So the money goes directly to BSE star. What is BSE star? It's like, it's a division of the model stock exchange for on the mutual fund side, but the money directly goes from the user's bank account to the account and from there on to the fund house. So it never really fits with deserve, which are the other thing, right?
00:38:53
Speaker
Sometimes money sits with the broker or the banker and that's how sometimes brokers and bankers, especially bankers make money from that.
00:39:03
Speaker
But in our case, it flows directly. So there is no this and then therefore also there's no risk to the user from a potential issue I deserve in the future, if any. So like on BSC style, then you are registered as the broker. Therefore you get that commission on the mutual fund investment done. That's right. If you're doing that, then that's how we make it. There's the other alternative, which is we charge advisory fees and not on commissions. And like I said, we'll experiment with both models.
00:39:30
Speaker
But our users are more particular about transparency, I think, than about how. Right. But currently it's the commission led model, right? Yeah. And besides mutual funds, what other asset classes are you currently doing? So we've done some of these alternative deals, like I said, we've done. And in these, to be honest, we've not been so sort of focused on how we make money at this stage. It's more about access.
00:39:55
Speaker
And we'll discover monetization over a period of time. What about crypto? Is that an asset class that you... So, you know, it's something that obviously the team is very excited about. They are tracking closely and they work creating a mental model around that. But we will only do it after Indian regulators bless it. That is something that is very important for us because I think
00:40:21
Speaker
Certain amount of regulatory frameworks do need to come into place before users can put meaningful money on that site. I mean, it's early days, hopefully the regulators will make a framework to cover these.
00:40:38
Speaker
or till the time, because unless that happens, the custody of the assets, the cost, for example, look at mutual funds and stocks and et cetera, highly regulated as you know exactly how much money your distributor is making, et cetera. I think that level of transparency needs to come in on this side before it becomes a
00:40:59
Speaker
asset class and we can you know thump the table and recommend to our users. How would you suppose you know in a couple of months crypto regulations come in and but how would you actually do that because say you can access equity through mutual funds and which makes your life easier but if you had to
00:41:18
Speaker
do crypto, then would you maintain it on your own wallet and that safekeeping of that? Or would you look for a mutual fund-like instrument on crypto space, which gives a diversified exposure to a number of... Exactly. So we would go for a managed crypto solution.
00:41:40
Speaker
which is where an expert is managing the allocation across different currencies as opposed to telling the user they do this particular currency or that one. Are there any such instruments existing today? Like a managed crypto, like a mutual fund equivalent in crypto space?
00:41:58
Speaker
I think globally they are. So which is why if we do it, it will be a part of our global asset platform. Globally we are beginning to see some of those. Okay. So your global asset platform, like how do you make that happen? Like you're saying that someone could invest in Tesla or Apple stocks. How do you make that happen? No, so we are not doing that actually. What we are doing is we are identifying high quality fund managers, which manage money for typically large institutions like 70 to 80 million dollars, et cetera.
00:42:28
Speaker
Now, if most of their funds are accessible to people who will put in a $1 million per investment, we are trying to do is to get them down to ticket sizes of 500 to a thousand dollars and then make them available. Now, the reason we do, we are going with fund managers as opposed to recommending individual stocks is that it's all very good to recommend individual stocks and markets are going out.
00:42:56
Speaker
But you do need, and secondly, you know, what we end up seeing is that users end up buying stocks that they know about. Yeah. Apple Tesla. Tesla, et cetera. There is a whole spectrum of like industries and businesses, which you don't hear about. Let's say the semiconductor businesses. Some of those are going really well, et cetera. Why would you not? So just because they're not consumer businesses doesn't mean that they're not good, right?
00:43:20
Speaker
So we went to a high quality fund manager. We work with them to get access to the institutional share class where the cost is very low. We get them access at lower ticket sizes. And we do a lot of work, like even in the couple of fund managers that we've chosen, we have done
00:43:36
Speaker
At least 12 to 13 meetings on record with each one of them and taken notes like we have spoken to the fund manager, the research team at the back end, we have taken couple of their examples of stocks they've chosen, understood how they chose that particular stock mainly with a view to try and understand how they think about it.
00:43:53
Speaker
So that diligence goes in before we recommend that particular fund manager. And that fund manager could be investing on any asset class across the world or like they would be investing in US assets or like what? There are two, no, so global stocks. So they're not only US, but also we have one fund manager, which we're onboarding, who will have multiple different asset classes. So like equity, fixed income, gold,
00:44:22
Speaker
Japanese, US, etc., depending on whatever. So you said one of your core principles was a continuous evolution and balancing the portfolio. How do you do that then? You have the mandate to sell? No, we will have to go back to the user for consent.
00:44:42
Speaker
So, we nudge the user for consent to rebalance. User can again choose to ignore our recommendation and the old portfolio will continue, but ideally we would want the user to approve the recommendation. The second thing is that this is a tax optimizer in the sense that we checked what is the tax impact of the rebalance and is the tax impact nullifying the potential gain that you could get. Only then the system regards the rebalance for that particular user.
00:45:12
Speaker
So you and I can come into the same portfolio, but let's say you came in before me. Now, because you came in before me, your instrument is already long term or for tax purposes, whereas minor part term.
00:45:26
Speaker
So my rebalancing will get triggered maybe two months down the line, whereas your rebalancing will be triggered immediately. Isn't this a little bit of a friction? Is it like a single click for a user or what does he need to do? It is a single click approval, but it is a bit of a friction because that is what, there are two things, right? One is it's important the user knows that we are doing it. And secondly, that's also the requirement from a regulatory perspective.
00:45:51
Speaker
But we will do our education from our side. So one thing which we do is on a monthly basis, we are sending video updates to the users on their portfolios. So expert talks about the portfolios, what is happening in the markets and in their portfolio and what changes are we likely to do. So these are like 90 minute to two minute, 90 second to two minute videos that the users see.
00:46:18
Speaker
and that enables them to understand a little bit better. So our thing is that we will help manage their portfolio, but they will be fully updated at all points of time. So do you think you would want to be in a space where you're not even sending these nudges and you're just like invest and forget option for a user?
00:46:42
Speaker
like where you only do the rebalancing. Do you think there is value in creating a product like that or it's better like this where the user is? No, so to be honest, like in the future, we would definitely do something around that in terms of how we can bother the user lesser. But I think one more principle again will be that we will continue to keep them updated.
00:47:07
Speaker
Like they should know what's happening unlike a black box where the user doesn't know underlying what is going on. We will never take that approach.
00:47:15
Speaker
Like you do want the user. It's important, right? Your confidence also builds better if you know what's going on. Like there are, again, you know, if you see doctors and I give that analogy, there are two types of doctors, right? One is somebody will give you the medicine and tell you that, okay, now you can leave. There's another type of doctor, which you really like is people who tell you, this is what is happening. This is what I'm giving you. This is how it will help you. And then you, you feel so much better about yourself.
00:47:43
Speaker
So I think that's the approach that we will take. We will hyper communicate. If I already have investments, is it possible to migrate them onto Deserve so that I don't have to go to multiple platforms and look at what my investment is doing?
00:47:58
Speaker
So, you know, we'll, we'll bring that feature. There's already, I mean, in piloting already, the only thing is the friction is very high right now, like in doing that, like the user has to do a work, migrated, et cetera, which is what we want to solve for before we launch it. Like, you know, all good intentions fall at the altar of execution, right? Because if, and so for us, making sure that the execution is seamless is just as important as what we're doing with it.
00:48:27
Speaker
Yeah, it's definitely on the cards and very soon, hopefully. Do you want to go down the route of being like an investment super app where users can do everything? Or do you want to remain focused on only curated wealth management? I feel like, you know, we have seen that everyone has to play to their strength. We believe our strength is being able to manage high performing portfolios. And
00:48:54
Speaker
and working hard on that. And I feel like we should be focused on that and not confuse the user. And that's, I think, going to be important part of our strategy, like being focused. And sometimes, you know, as an entrepreneur, it's very hard to say no, like, you know, that you have to say no to make sure what you're doing is really high quality.
00:49:19
Speaker
So I'm okay doing less stuff, but which is really high quality. That's what the message to the team is also that whatever we do, it should be like secure, stable, scalable and quality. The user experience should be fantastic. Even if we are doing like four, five things, we'll do them really well. How do you acquire users? Like are you like doing campaigns or you know, what's your user acquisition approach?
00:49:45
Speaker
So right now we've not done any marketing. It's all organic. So we do a lot of educative content around how to think about money, how to personal finance, etc. And the current traction that we've got, so like 78,000 signups, etc. is only on account of that. When did you open registration? I'd say about two months, a little over two months ago.
00:50:12
Speaker
Okay. Okay. So, so you're getting about 4,000 registrations a month organically right now. Yeah. So I think, and that is like right now it's fine because we are an invite only. And then as we grow, you know, it will like figure out how to communicate more, but I feel like, you know, educated content is a very big play. I think there is more work that
00:50:37
Speaker
in general like Indian businesses can do around that. And how have you funded the business so far? So in September, we raised our first institutional round from Elevation and
Deserve's Growth and Future Directions
00:50:50
Speaker
Matrix. And both have been phenomenal supporters for us in terms of even in terms of how to think about business, how to hire, how to grow your footprint on the talent side, etc.
00:51:04
Speaker
That has been great. Whiteboard and Bloom are other two funds which are invested in Deserve.
00:51:10
Speaker
And then alongside, I also raised from 15 to 20 of other founders. So once a user is onboarded, what is the average asset under investment per user that you have? So currently, the users start off with minimum amounts of 50 to 75,000. Currently, the average is a little over a few lakhs, like two or lakhs, because we've seen a lot of users come in with 5, 10 lakhs also.
00:51:39
Speaker
And the second thing that we're seeing is users are coming back monthly to do top ups. So close to 50 to 60% of the users without a nudge from our side are coming back to add on to their portfolio.
00:51:54
Speaker
What do you think could be the size of Deserve? How big is that addressable market, so to say? Maybe there would be some comparable ratio in the US. What percentage of investment goes through managed platforms versus what percentage goes directly into mutual fund? What percentage is directly into equity by users themselves? What is the split in that? What do you see will happen in India? Going ahead, what kind of trend do you think will be?
00:52:26
Speaker
Yeah, so Akshay, great question. So first up, I think India will be different. India will, because the US and the developed markets have had a very different investing journey. India has. India has only now started investing. These markets had wealth managers and advisors for the longest period of time.
00:52:43
Speaker
So if you look at the US, there are nearly 4000 advisors per million households. In India, in general, all over the country, that number is close to 250 advisors per million households.
00:52:56
Speaker
And if you look at even the tier one cities, that number is 1200 advisors per million hours old. So there is a massive gap that there is in India in terms of advisors. And my theory is that India will not be able to build those many number of advisors. India will directly leapfrog to a tech first approach. So that is the first part of it. The second part is that.
00:53:20
Speaker
If you look at the salary, so they're currently close to 95 million households in India, which on average make more than $10,000 or seven and a half lakh rupees of income. That number will go to about 172 million households by about 2028, 2029. So that number is going to double in the next six to seven, eight years.
00:53:44
Speaker
which is where the big opportunity is. This segment of people alone will add nearly $4 trillion in financial savings in the next seven to eight years. It's our job to ensure that we capture a large part of it. Even at like 1% of $4 trillion is $40 billion in AU.
00:54:07
Speaker
So it's about like how well we are able to do. Obviously we believe this is a massive opportunity that is before us and in general before the investing space in India. India and the one comparable number which we can look at is that India has a mutual fund AUMs of 15% of GDP. That data for the US is 110% of GDP. Now India is at a point where GDP is growing.
00:54:34
Speaker
the 15 number is going up to 110. So I think there is a massive opportunity across the board. So both in terms of deepening in terms of fresh asset creation, etc. There are like crazy opportunities. And I think there is something that I personally feel that in Asia,
00:54:55
Speaker
India has the potential now to also overcome China in terms of like formalized assets because in regulatory systems are actually top-notch relative to like our regulations are where it would be in the U whereas the penetration is where probably like we are many years behind. So I think that's the exciting opportunity. Indians when they put money into something they know that their money will not be destroyed.
00:55:23
Speaker
So I that's where I think the exciting is the framework is all there the India stack is there The well creation is happening and the financial asset formation is happening
00:55:33
Speaker
Now it's about deserves opportunity to figure out how much we can capture out of it. Don't you think like if you want to be like a behemoth in investing, it would be best served as part of a bigger, like say a PTM or a phone payer, you know, one of those household name FinTech companies, like, because that's where the trust comes in automatically, the distribution scale comes in, you know,
00:55:58
Speaker
Obviously, I think, you know, at the face of it, it seems logical, but if you think a little deeper, Akshay, I think the question is that, what does a platform stand for? Like how many different things, like in the mind of the user, as especially the market matures, specialization begins to thicken.
00:56:19
Speaker
and we will be specialized investment experts on the platform and that is our brand positioning, that is our message to the users also. Whereas if I would tell them that on my platform you can do everything including investing, that's a very different approach to go after.
00:56:37
Speaker
So I think obviously ATM, phone pay etc will scale their investing offerings for sure and they will do really well. But I think there is a space for a stand alone investment specialist and
00:56:51
Speaker
What we do have to work on is on the trust and frankly, trust compounds over a period of time. I think you can't hack trust. You have to build over a period of time. You have to continuously do the right stuff month on month, quarter on quarter, year on year. And before you know it, that trust becomes a massive snowball.
00:57:10
Speaker
So it's just about, for us, I think spending the next couple of years building trust. Growth might come before that, but true trust will take a couple of years and there is no shortcut to that. So I think we are like here for the long haul. We are sufficiently well capitalized thanks to last round. So I think from that perspective, we have the ability to keep going for many, many years ahead.
00:57:35
Speaker
Okay, what is your total assets under management today? We would be just touching about 200 crores right now. It's early days, but I think I've been very happy with the fast scale-up. Some of it is also because people see us as being from the industry and therefore slightly more drop-in.
00:57:54
Speaker
We have people from the financial investing industry who are investing with us. So it's quite interesting that way, but I think assets will scale a month on month. I think the scale is only going more because in our business, the existing user tops up and the users come in. So.
00:58:13
Speaker
It's not a transaction platform, it's an investing platform. So AUMs keep growing and also assets automatically grow because markets are moving up over a period of time. What do you estimate it will be, say end of next financial year? Your AUM? March 23, like a year and
00:58:30
Speaker
In rupees, this would be about 5000 to 7000 crores. Give me a context. What does this number mean? 5000 to 7000 crores. What are similar companies which have similar AUM? Data are not available in the industry, Akshay. That is a challenge. Let's say in a mutual fund perspective. So the mutual fund industry is 3 lakh crores.
00:58:52
Speaker
So, it's a small fraction of that. Wealth managers like recently Anand Rati got listed, it's a 30,000 crores of assets, etc. So, there are like different benchmarks that you can look at, but I think it's very hard to compare because two years later, the investing space will also be much bigger. So, I think investing space will grow like at a clip of my theory is 25 to 30 percent year only because 7 to 8 percent will come just on account of market growth.
00:59:22
Speaker
The remaining is 15% which will come because of incremental assets coming in. So that's why I think 20 to 30% will be like easily possible. If you like the Found A Thesis podcast, then do check out our other shows on subjects like marketing, technology, career advice, books, and drama. Visit the podium.in that is T-H-E-P-O-D-I-U-N dot I-N for a complete list of all our shows.
00:59:52
Speaker
Before we end the episode, I want to share a bit about my journey as a podcaster. I started podcasting in 2020 and in the last two years, I've had the opportunity to interview more than 250 founders who are shaping India's future across sectors.
01:00:08
Speaker
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01:00:29
Speaker
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